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Never mix investments with insurance

by Anup Bansod ·
Published October 13, 2018
· Updated October 14, 2018

As a general rule, I practice and advocate to avoid mixing your investments and insurance products. Over time, mostly from people who have invested in Ulips and endowment policies, I have taken some flak. Ranging from mild criticism to outright rejecting my financial acumen in public settings. No matter what people say or do, ULIPs and endowment policies are not investor friendly. That is true for anything that tries to mix investment and insurance.

They are not designed for investors to make money. They are just ways for middlemen, Banks, Asset Management Companies and Insurance providers to make money. If that was not true they would not be trying to sell it to you so ferociously. Try visiting one of the established banks and ask for a locker. Almost certainly they will not give you one without you signing up for one of their sleazy insurance-investment mix products. It’s not just me saying this, almost any good financial advisor will give you the same advice.

To summarise the problem they are neither good as investments nor as insurance.

Not Good as Insurance:

The insurance coverage provided by them is very small and most people don’t realize the amount of coverage they need. What you need is at least 10-15 times of what you would get in these policies. If I had to oversimplify the calculations, a middle-aged man should roughly have 5-10 times the annual salary as coverage(depending on dependents etc.).

Not Good as Investments:

In terms of being an investment alternative, they are not that great either. The lock-in period is too long. The real problem though is to get the promised or advertised results it might take you up to 10-15 years. There is a lot of cost in the initial years and hence the returns are not that good in those years. Other options like ELSS ( or regular mutual funds ) have more transparency with respect to cost/expense of the fund with a lot less lock-in period.

With the new Long-Term Capital Gains tax law and the exception to insurance products as they are not ‘investments’ has given fuel to the argument. I am not going to go over the details myself but many online portals have already explained it, so I will just share a couple of links with you. Hopefully, this will help you make an educated opinion.